Indonesia’s PT Borneo Lumbung Energi, an affiliate of Renaissance Capital investment bank, has secured $2.8 billion in debt to help fund its acquisition of coal mines from local miner Bumi Resources.
In what appears to be the largest overseas borrowing by an Indonesian group since the Asian financial crisis, the debt facilities include $2.1 billion in senior and junior debt and $700 million in exchangeable debt.
"Creditors and investors of Borneo are now in the process of finalising the settlement process and closing," the statement said. "All the formalities related to drawdown/disbursement are expected to be executed by the end of this week."
Borneo is borrowing a $1.6 billion senior debt facility arranged by Credit Suisse. It comprises a five-year, $1-billion tranche and a six-year, $600 million tranche. It has also secured $500 million in junior-debt arranged by Singapore-based bank UOB Asia that has an eight-year tenor with a bullet payment at maturity.
To help finance the equity portion of the acquisition, Borneo has also secured $700 million in four-year exchangeable debt, also arranged by UOB Asia. This includes a $500 million instrument exchangeable into 49% of Borneo shares with the remainder convertible into 20% of the Bumi coal assets.
Borneo is majority-owned by Renaissance Capital chief Samin Tan who co-founded Renaissance Capital in 2002 with his fellow former senior partner from Deloitte & Touche, Surjadinata Sumantri. The two men created the company along with a number of local and expatriate professionals from Deloitte & Touche from the distressed asset and workout group. Initial capital for Renaissance was sourced from the founding partners.
Meanwhile, Bumi is a part of the Bakrie Group, which is controlled by the family of Indonesia's Coordinating Minister for Welfare, Aburizal Bakrie. Bumi, which is selling its core business of coal mining to invest in the oil and gas sector, is in the process of taking over oil explorer PT Energi Mega Persada Tbk.
Bumi is making out well on this deal – it sold the mining operations for roughly $3 billion (the second-largest transaction in Indonesian history, behind last year’s record deal by the Sampoerna family when it sold its entire stake in cigarette producer HM Sampoerna to Philip Morris International for $4.6 billion). It paid a mere $149 million for 80% of PT Arutmin from BHP Billiton in 2001; it already owned the remaining 20%. In 2003 it paid $500 million for the entire share capital of KPC from BP and Rio Tinto.
One of the reasons Bumi got the mines for such a low price is that outstanding agreements (signed almost 20 years previously) called for the then foreign owners to eventually divest 51% of their respective companies to local Indonesian investors.
Despite the fact that Bumi was an Indonesian company, the future ownership of Kaltim came under question because Bumi purchased Kaltim through two entities -Sangatta Holdings and Kalimantan Coal - that had foreign investment status. So the East Kutai government, where Kaltim mine is located, claimed the company itself under the 51% divestment rule. But it was never able to raise the money to buy the mine - yet still a cloud hung over Bumi's head.
Setting aside Bumi’s troubles, the coal business, thanks to China’s booming demand, is still steaming along strong. KPC is the largest coal producer and exporter in Indonesia and Arutmin is the fourth-largest coal producer and third-largest exporter, according to the Ministry of Energy and Mineral Resources. Combined, they are the largest producer and exporter of coal in the country, accounting for 37% of the coal exported from Indonesia last year.
Last year, the coal companies produced and sold approximately 43.7 million gross tonnes of coal. They booked combined 2005 earnings before interest, tax, depreciation and amortisation of $474 million and net cash of $294 million on net sales revenue of $1.64 billion.